New series: WPI inflation hits 4-month low in April; IIP grows 2.7% in March

Higher growth due to rise in factory numbers; impact of indirect taxes excluded from inflation math

By: ENS Economic Bureau | New Delhi | Published: May 13, 2017 2:16:48 am
Inflation, inflation data, WPI inflation, IIP data, WPI data, GST inflation, GST impact on inflation, Economy news, Indian Express Representational Image.

Inflation rate based on the new series of Wholesale Price Index (WPI) declined to a four-month low of 3.85 per cent in April from 5.70 per cent in March, while Index of Industrial Production (IIP) grew 2.7 per cent in March as against 1.9 per cent a month ago, data released by the commerce ministry and Central Statistics Office (CSO) showed. With an aim to align all major macroeconomic indicators, the government on Friday released new series of WPI and IIP, shifting the base year for both the indicators to 2011-12 from 2004-05.

The new series industrial output shows much higher growth as against IIP with previous base year of 2004-05. As per the monthly industrial output figures for 2012-13 to 2016-17, IIP contracted in five months in the new series, while as per 2004-05 series, the contraction was recorded for 22 months. For 2016-17, factory output grew

5 per cent with the new base year of 2011-12 as against 0.7 per cent growth with the old base year and 3.4 per cent growth last year with the new base year. The CSO said that the new series shows higher industrial growth rates in most months during April 2012-March 2017 as compared to the old series due to shifting of base to a more recent period, increase in number of factories in panel for reporting data, exclusion of closed ones, and inclusion of new items and exclusion of old ones.

Among the major changes carried out in calculation of wholesale inflation, the impact of indirect taxes has been excluded from the prices in order to remove the impact of fiscal policy. “This is in consonance with international practices and will make the new WPI conceptually closer to Producer Price Index,” a commerce ministry statement said.

When asked whether WPI will reflect impact of Goods and Services Tax (GST) with the impact of indirect taxes having been excluded, chief statistician TCA Anant said: “Since GST will get captured at the final point of sale, so the impact will be captured via CPI as far as final point of sale of goods is concerned. To some extent, the difference between WPI and CPI inflation rates will reflect the GST impact.”

Anant added exclusion of taxes from data is a step in the direction of the long-pending recommendation to move towards Producer Price Index from WPI. Also, since there was criticism regarding inclusion of tax data in price deflators for national accounts, the removal of taxes from data will help compliance with international standards on price deflators used in national accounts, he said.

For inclusion of services, DIPP secretary Ramesh Abhishek said that the government is working on a different index. “That we will come out in the next few months when the Producer Price Index comes and services will be a part of it. But, right now in WPI, they are not captured,” he said.

On volatility in IIP, Anant said that there is “an intrinsic volatility’’ in output data which will continue in IIP. “Any index of output collected from a finite number of entities can be volatile … entities can run into issues, there can be labour trouble, climatic problems … all over the world output measures of this type are volatile … I have cautioned users not to read too much into month to month changes … look at the longer run …,’’ he said.

A new category of infrastructure/construction goods has been included in IIP, while the category of basic goods has now been renamed as primary goods. As per the new data, the manufacturing sector output slowed to 1.2 per cent in March, from 5 per cent growth in the same month last year, while electricity generation slowed to 6.2 per cent, from 11.9 per cent in March last year. The mining sector, however, expanded by 9.7 per cent in March 2017 compared to a growth of 4.7 per cent last year.

In WPI, inflation in food articles declined to 1.16 per cent in April from 3.82 per cent in March, mainly due to deflation of 13.64 per cent in pulses. Inflation rate for vegetables stood at (-) 7.78 per cent in April, while it was -40.97 per cent for potato and -12.47 per cent for onion. Inflation in the fuel and power segment was 18.52 per cent in April, while that of manufactured products was 2.66 per cent.

Industry body CII’s director general Chandrajit Banerjee said: “These signs of an upturn in IIP are encouraging, as it is indicative of stronger manufacturing activity based on consumption demand than was getting reflected in the data captured in the earlier base of 2004-05. What is significant is that from now on, the IIP data would have a more realistic coverage and be reflective of the market realities…”

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